By Praveen Menon and Tom Westbrook
WELLINGTON/SYDNEY (Reuters) - New Zealand's deputy prime minister on Monday called on the chairman of the local unit of Australia and New Zealand Banking Group to step down as regulators ramped up pressure on the lender to improve its internal risk controls and governance.
Deputy Prime Minister Winston Peters said ANZ Chairman John Key, a former prime minister under the opposition National Party, should resign as he found himself at the centre of questions about governance practices at the bank.
Hours earlier, New Zealand's central bank asked ANZ to provide independent proof it's operating in a prudent manner in the wake of last month's censure of the lender.
In an interview with local broadcaster TVNZ, Peters said he thought Key should resign, days after ANZ's New Zealand CEO abruptly left the bank over an expenses scandal.
"It's the Governor of the Reserve Bank who could make that request. But if you were to ask me, if I was the Governor of the Reserve Bank, I would have asked for his resignation, yes," Peters said.
Peters said that Key has a 'massive conflict of interest' because he is also on the board of ANZ's Australian parent.
"I think there's some serious questions that need to be answered, and there's much more to be unearthed in my view," the deputy prime minister said.
In an email to Reuters, ANZ said Key has declined to respond to comments made by Peters.
Later on Monday, the government announced that its review of the Reserve Bank would look at whether the powers were strong enough to regulate the banking sector.
"Now is the right time to check we have the tools to make sure banks meet their obligations to New Zealanders, and the powers to enforce them,” Finance Minister Grant Robertson said in a statement.
ANZ New Zealand's CEO David Hisco abruptly left the bank last week after a review of his expenses showed he logged payments for chauffeurs and wine storage as business expenses rather than personal.
Key said Hisco did not share ANZ's conclusions as he "was adamant he had the authority for the expenditure" but agreed to leave the bank immediately.
The CEO's departure came just weeks after the lender's licence to calculate its own operational risk capital was revoked due to "persistent" control failures.
RBNZ on Monday asked for two reports from ANZ's local unit - the first on its compliance with central bank capital adequacy requirements and a second to assess the bank's internal governance, risk management and internal controls.
"These formal reviews will allow us to work with the bank to ensure the public, and we as regulator, can have continued confidence in the bank," RBNZ Governor Adrian Orr said in a statement.
The reports will need to be compiled by an RBNZ-approved independent person. ANZ said it would comply with the request.
Former RBNZ official and banking industry expert Geof Mortlock said ANZ New Zealand's parent company needs to step up after the series of failures.
"Otherwise they will look negligent as shareholders. It's especially important now, when ANZ, along with the other Australian banks, faced criticism for conduct in the Royal Commission in Australia," he said.
The Royal Commission in Australia exposed industry-wide misconduct as well accusations of profiteering that went all the way up from branch level to the boardroom.
Top Australian banks have been resisting a proposal by RBNZ to raise capital ratios to 16%, meaning the country's top four banks, including ANZ, would collectively need an extra NZ$20 billion in new capital over the next five years.
ANZ said it was sound and strong, with NZ$12.4 billion ($8.2 billion) of capital as at March 31, which it said is NZ$3.5 billion more than regulatory requirements.
($1 = 1.5175 New Zealand dollars)
(Editing by Sam Holmes & Shri Navaratnam)